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3232Should I get private health insurance before it’s too late?https://www.enrichmentality.com/get-private-health-insurance-late/
https://www.enrichmentality.com/get-private-health-insurance-late/#respondWed, 14 Mar 2018 04:07:31 +0000https://www.enrichmentality.com/?p=1968Ten years ago, a memorable series of television ads for a health insurance comparison website in Australia introduced a slurry of colourful, confusing, and bizarre terms into our vernacular. “Tossin’ possums”. “Cuddlin’ cactus”. And perhaps most famously, “puffin’ muffins”. All of these phrases were intended to describe just how stupid one would have to be […]

Ten years ago, a memorable series of television ads for a health insurance comparison website in Australia introduced a slurry of colourful, confusing, and bizarre terms into our vernacular. “Tossin’ possums”. “Cuddlin’ cactus”. And perhaps most famously, “puffin’ muffins”.

All of these phrases were intended to describe just how stupid one would have to be to not buy private health insurance (at least, through their website). But is that really the case? Would you have to be “puffin’ muffins” not to have private health insurance? In today’s post, we’ll take a look at the question of private health insurance. (With a few tips that apply to any kind of insurance you might consider taking out).

Where do you live? And types of insurance

self insurance (where you bear all of the risk by yourself by not pooling your risk with others),

public insurance (where you are already covered by a, usually government, scheme, like universal health care), and finally the subject of today’s post,

private insurance (where you as an individual or family take our your own policy with an insurance company).

When it comes to health insurance, the country you live in and the state of its public health system will influence your decision perhaps more than any other factor.

The first question to ask is, do I have access to a public health system or universal health care?

What is universal health care?

Universal health care is a system that offers protection to all citizens of a country. It ensures everyone can receive treatment and medicine. Even those who are homeless. Unemployed. Pensioners who can’t otherwise afford insurance. Children born into poverty. This usually means that the government pays for some or all health care via taxation.

If you are covered by a form of universal health care like Australia’s Medicare, you are not really making a choice between private insurance and self insurance. You are making a choice between private insurance on the one hand, and public insurance + self insurance on the other.

As an Australian, answering the question of an Australian reader, I’ll use Australia as the default example throughout this post. (Although many of the questions I raise should be asked by anyone, anywhere).

Currently in Australia, we are encouraged to take out private health insurance by (unsurprisingly) insurance companies, and the government. Young people in particular are penalised for not getting on board. And they’re blamed in the media for rising insurance costs. (The theory being that when higher-risk old people and lower-risk young people pool together, it lowers the overall risk profile).

Yet while there has been a slight drop off in young people holding private health insurance, the Conversation reports that it is the fact that people are using their insurance more that is making it more costly. This is common to both private and public healthcare in Australia. It’s not young people’s fault.

Furthermore, very little is done to positively motivate young people to sign up.

Rebates

In Australia, those whose income is under a certain threshold are eligible to claim a portion of their private health insurance back from the government in the form of a rebate. But now that private health insurance rebates are means tested, older people get consistently much larger rebates than young people. Even if they earn more, and despite the fact that they use the system far more.

How on earth this is designed to promote uptake of private health insurance among young people is beyond me. I’m all for means testing when resources are limited – ensuring that public funds are directed towards those who need it the most. But adding age as a criterion, and using it to help those who need it the least (in the sense that an older person has had a lifetime to accumulate the necessary wealth to pay for insurance that a young person has not) goes beyond means testing and borders on discrimination.

Let’s beat them with sticks!

When it comes to young adults, the government and industry alike have taken a stick rather than a carrot approach.

The government uses a couple of different sticks to goad people into taking out private health insurance. These sticks are used for all they are worth by insurance companies who assert that you would have to “be puffin’ muffins” or some other such nonsense not to take out private insurance. They claim that if you don’t, you are simply throwing money away through the Medicare Levy Surcharge and the Lifetime Health Cover loading.

Let’s take a look at each of these in turn, and how they might affect you if you are an Australian – and particularly a young Australian perhaps coming off your parents’ health insurance plan for the first time in your 20s, or looking down the barrel at the LHC loading which kicks in if you don’t buy insurance before you hit 31.

The Medicare Levy

The first thing to know about the Medicare Levy is that it is not a ‘tax’. Even though it is an amount you must pay to the government, calculated as a percentage of your taxable income, paid at tax time via your tax return. Through a fine piece of linguistic finangling, it is not a ‘tax’, but a ‘levy’.

At present in 2018, this tax – sorry, levy – is 2%, with plans to increase it this year to 2.5%. Those on low incomes (below $21,335, or $33,738 for seniors/pensioners) are exempt. Again, we see favourable treatment based on age. The elderly allowed to earn over $10k more than a young person just starting out. But basically, if you are earning over minimum wage, you will have to pay the Medicare Levy.

Despite some popular misconceptions, you cannot get out of paying the Medicare Levy if you earn more than the amounts listed above. Private health insurance will not make you exempt from this charge. But there is a disincentive that has to do with how much you earn.

Medicare Levy Surcharge

On top of the regular Medicare Levy is the Medicare Levy Surcharge. The MLS is aimed at encouraging wealthy individuals to take out private health insurance. Individuals with a taxable income of over $90,000, or families with more than $180,000 (with additional allowances for children) are required to pay a MLS of between 1 and 1.5%. This means an individual earning $90,001 would have to pay a $900 penalty for not having private health insurance.

If you earn more than $20 or $30,000 a year, but less than $90,000, the Medicare Levy and MLS shouldn’t factor into your decisions. You can’t get out of paying the ML, and the MLS won’t apply to you.

If you do earn over $90,000 a year, things are slightly different:

Let’s compare insurance for a healthy 30 year old female. She has no preexisting conditions and no particular desires for any special coverage. She’s not starting a family, not requiring any particular treatments etc. On both the government’s own website and the commercial comparison site advertised above, the cheapest policy I could find, with the most basic cover, was $92.56 a month.

With the government rebate for someone earning just over the $90k threshold, this comes down to $76.55 a month. Or $918.60 a year.

In short, I have never been able to find even a basic private insurance policy which costs less than the minimum MLS you’d have to pay without it. (If you can, please let me know!) But as this example demonstrates, a basic level of private cover can be had for a little more than you’d otherwise be paying the government.

It is, however, very basic. You will still have to rely on Medicare or self insurance for many treatments.

The second disincentive has to do with age more directly.

Lifetime Health Cover Loading

In Australia, following the age of 30, unless you are a member of a very small group of exempt individuals, you will have to pay a 2% loading on top of your regular premium for every year you did not have private health insurance. This is regardless of how much you earn. Even if you could not afford to buy private health insurance when you were younger, you will still be penalised. Thus, if you wait until, say, 40 to take out a private policy, your premiums will cost 20% more than if you had taken out a policy at age 30. (2% x 10 years)

This explains why even though private health insurance membership is rare among those in their 20s, it increases dramatically among those in their early 30s. (That and the fact that many people sign up when they decide they want to have kids).

The effect of waiting

Let’s say our same healthy 30 year old female above waits until she is 40 now to take out the same policy. With a 20% LHC loading, she will have to pay $17.35 per month extra on the cheapest policy.

Performing all of our calculations in ‘today’s dollars’ (in reality, insurance costs will go up, as, hopefully, will our example woman’s income, the tax brackets, etc.), holding insurance between the ages of 30 and 40 would have cost her $9,186. That equates to 529 months’ worth of loading costs, or 44 years. In other words, she will be EIGHTY FOUR before having to pay the loading means she would have been financially better off taking out insurance at 30. (Barring any dramatic healthcare costs above that sum that would have been covered).

Now of course, over these 44 years, costs will likely go up astronomically. A basket of goods costing $100 44 years ago would cost around $900 today. But likewise, if you invested $100 44 years ago, it would be worth much more today (of course depending on what you bought in both cases!) As we will see below, however, health insurance in Australia tends to go up in price much more than other goods.

Yet, in a recent change to government policy, LHC loading is now capped at 10 years. So it’s not quite as scary as it used to be. If you couldn’t afford private health care when you were younger (and given the age-based discrimination in the system, many can’t) you won’t be penalised for this forever.

The effect of a public vs. private system

In spite of government rebates for private health insurance, premiums continue to rise each year. The $76.55 a month policy I mentioned above is forecast to go up by $4.53 to $81.08 next month. That may not sound like much, but it will bring the total cost up to $972.96 for the year, instead of $918.60. An increase of almost 6%. That is far beyond the current inflation rate, which is just 1.9% at present. In other words, insurance costs are likely to go up faster than your pay (and as a result, your Medicare Levy surcharge, if any).

While it may be easy for us to see rebates as a gift or a reward from the government, really, they are a form of government subsidy for a private system which only the rich can afford. Just like private schools.

As Elizabeth Savage, professor of health economics reports, the rebate subsidy was introduced more on the basis of media coverage than evidence. After the introduction of Medicare in the 1980s, private health insurance membership dropped from about 50% to 30%. The story was that healthy people were dropping out, reasoning that public care would be sufficient for them, and creating an unsustainable system in which only the old and sick held on to their private insurance.

The reality, however, was that those who kept their private health insurance in spite of the availability of public cover were – unsurprisingly – those who could afford it. And the rich tend to be healthier on the whole.

Propping up the rich to fix a non-existent problem

In a nut shell, the prediction came true – in part. There was one system with an over representation of sick and elderly people. But it wasn’t the private system, funded by its wealthy members. It was the public system, with its mainly poorer demographic.

But the damage was already done – and continues. To fix a problem that doesn’t exist, just like private schools, private health funds are propped up by government funding in the billions of dollars. And costs continue to increase, as insurers increasingly focus on ‘extras’ cover, which are more profitable for them.

The rebate makes some sense if we view it as the government refunding people for the types of cover they would have had if they used the public instead of private system.

But despite these extras not being services that replace Medicare cover, the rebate is applied to them too. Essentially, this means that someone who can afford extensive private health insurance can have the government pay almost a third of the cost of their glasses, dentistry, or even aromatherapy. Golf clubs. Or CDs of relaxing music. Meanwhile a poorer person must pay for all such expenses – necessary or not – out of their own pocket.

The LHC loading penalty, too, was supposed to lower premiums, by lowering the overall risk to insurers by encouraging more young and healthy people to sign up. But surprise surprise, it has not. Despite the lowered risk, insurers have increased average premiums.

So what’s the story?

Recently, the narrative has moved away from one of insuring the viability of private insurers. Health insurance companies in Australia make enormous profits, so clearly they aren’t at risk of going bust any day soon. Instead, we are told that taking out private insurance will help reduce the pressure on the public system. But this hasn’t happened either, with waiting times remaining unchanged.

Private insurance certainly has its advantages, especially when it comes to waiting times and certain patient outcomes. But it contains surprises too. Some patients who have private insurance choose not to use it, which sounds insane at first. But sometimes, you can be better off going in as a public patient instead of private and paying the gap. Other patients reported being unable to make use of their private insurance, because being admitted as a private patient entailed a series of additional charges, not covered by their insurance, which had to be paid out of pocket. These can run to the thousands of dollars.

In one case, a patient reported that their insurance wold not cover the cost of their anesthetist. Now, I’m not a medical doctor, but an anesthetist is pretty vital if you’re going into surgery, I would have thought.

What ever you do, read carefully

If you’re looking at an insurance policy for any risk – healthcare, life, income protection, auto – don’t forget to read the terms and conditions, and the exclusions, carefully. As I detailed in a recent post, while income protection insurance can be super important when you have a mortgage (insuring that, if you or your partner become disabled or die, your mortgage will still be paid so you/your dependents still have a place to live) it may not pay out if you are already ahead in your payments.

Before you go into hospital for a scheduled treatment, make sure to ask what will and won’t be covered if you have private insurance. Unfortunately, the onus appears to be on the patient.

If you are looking for cover for a medical issue you already have, or think might crop up, check the waiting periods and exclusions carefully.

Insurance marketing tactics

Marketing can be broadly divided into ‘hard’ and ‘soft’ sell tactics. Often, life insurance is sold using a soft sell, one designed to tug on the heartstrings. It may be so subtle, you don’t even realise what is being advertised until the end. This allows time for the emotional impact of the situation to sink in, and for you to make the decision with these images playing on your mind.

When you are bombarded with unfamiliar terms and deadlines with penalties attached, it can be difficult to make a rational decision. It seems like you need to make a snap decision, and that making any choice now will be better than delaying.

Remember that it’s all marketing bluster. With the internet, the meaning of all of those terms is at your fingertips. The sticks the government has put in place aren’t that bad. It’s worth taking your time to read what you are getting into carefully.

A final word…

Ultimately, I think most people will take out the insurance they can afford. There is no single ‘best’ answer, because a policy that is unaffordable to you is clearly not a good policy. But if you are a young person wondering what to do about looming deadlines and being pressured by insurance companies, remember that it’s never too late. If you want to, but don’t have the money to take out an insurance policy now, you can always do so later. The LHC loading is capped at 70%, which means that while your premiums might get significantly more expensive, they will never escalate exponentially (unless there are some dramatic governmental changes). And now that it’s capped at 10 years, it’s not a life sentence either.

Choice found that the iSelect site compared only 11 of the 37 available health funds in Australia – less than a third. Despite being the most visited comparison site, it performed the third worst in terms of number of funds compared. And, like any time you are using a broker, beware that it is not really a free service. Up to 40% of the first year’s premium can be paid to the broker (or website) as a commission. That means, on a $918 policy, there’s about $367 of built-in fat. Now you’re really cuddlin’ cactus!

]]>https://www.enrichmentality.com/get-private-health-insurance-late/feed/0Do I need insurance?https://www.enrichmentality.com/do-i-need-insurance/
https://www.enrichmentality.com/do-i-need-insurance/#commentsWed, 07 Mar 2018 07:54:45 +0000https://www.enrichmentality.com/?p=1969I was recently asked an excellent question about private health insurance. But the more I wrote about the topic, the more I realised I had to say about insurance in general. So let’s take a look at the thrilling, wonderful world of insurance more broadly (ha!), before we get down to private health cover in […]

I was recently asked an excellent question about private health insurance. But the more I wrote about the topic, the more I realised I had to say about insurance in general. So let’s take a look at the thrilling, wonderful world of insurance more broadly (ha!), before we get down to private health cover in my next post.

What is insurance?

Insurance, according to Investopedia, “is a contract, represented by a policy, in which an individual or entity receives financial protection or reimbursement against losses from an insurance company. The company pools clients’ risks to make payments more affordable for the insured.”

In other words, insurance is a gamble. The insurance company (like the casino) is betting they won’t have to pay out more to you than you pay them. You, on the other hand, are betting that you will require (and receive) more value (in health services, in replacement of goods or vehicles or luggage or income – whatever you are insuring) at some point in time than the amount you have already put in. If you were 100% confident that you would never need more than the cost of the premiums, you would probably self-insure instead. Insurance can give you peace of mind in that you don’t have to be 100% confident of not requiring these services.

Types of insurance

There are three major categories of insurance: private, public, and self insurance. Which are available to you will depend greatly on the type of risk (e.g. health, automobile, home and contents), where you live, and of course, how much money you have to spend.

Private insurance

Private insurance is a contract taken out by an individual with an insurance company. In Australia, taking out optional private health insurance would be one example of private insurance. You pay a certain amount in premiums for a certain level of cover.

Public insurance

Public insurance is a form of coverage made available, usually by government services, to all citizens. In Australia, Medicare would be an example of this. You may have to pay a Medicare levy, but everyone is entitled to the same level of cover under Medicare, regardless of whether you can afford to pay anything into the system or not.

Despite universal healthcare or ‘socialised’ medicine being mentioned frequently in the news, public health care is far from the only form of socialised service in most developed countries. Consider the police, or the fire brigade. I’ve never heard anyone suggest we should all pay separate police subscriptions. Or fire brigade membership.

If someone is robbed, it makes sense that we should want the police to investigate. Not just to retrieve their goods, but to hopefully prevent further crimes which might affect us.

If someone’s house is burning down, it makes sense that we should want to put it out. Not just for their sake, but so our own properties don’t catch on fire.

Likewise, if someone is sick, we should want them to get treatment not only so they don’t suffer, but to prevent the spread of disease.

In this way, you are probably already a beneficiary of many public insurance schemes you haven’t even considered yet.

a) take out a travel insurance policy. This would be a form of private insurance, where you are pooling your risks and payments with other travelers.

b) decide that, as a multi-billionaire, you don’t need to take out a travel insurance policy as you can bear any cost yourself. This would be a form of self-insurance.

c) forget to take out a policy. This would also be a form of self-insurance. Even though you didn’t intend to bear all risk and responsibility all by yourself, your lack of private or public coverage (because your home country healthcare won’t apply) means you will have to anyway.

The takeaway message here is that for any given risk, if you do not take out an individual policy and are not covered by public insurance, you are self-insuring by default. Whether or not you actually can afford to.

Self-insurance makes a lot of sense for small, unlikely risks. But a lot less sense for potentially devastating risks, like losing your house. Unless, of course, you are extremely wealthy.

Are you already covered?

Just because you haven’t taken out a private policy against a certain risk doesn’t necessarily mean you’re not covered. Before deciding to pay for private coverage, you should always check what levels of cover you may already have. Then you can decide whether to replace or supplement them.

Start with your government. As we’ll detail in the next post, many citizens already have access to public healthcare systems. Then…

Check with your employer or union. Some employers offer special rates for employees on healthcare or public liability, or even insure them.

Check with your bank. If you have a credit card, you may already have cover for services purchased through it, like hire cars or travel expenses. This may impact the level of auto insurance or travel insurance you require.

Check with your superannuation fund. You may already be paying for death and disablement insurance or income protection. If you have more than one fund, you might even be paying for multiple policies!

Check with your landlord or owner’s corporation. If you’re renting, or if you own an apartment, the building and its fixtures may already be insured by the landlord or owner’s corporation. Rather than home and contents, you may only require insurance for your own belongings.

Depending on where your live and what you do, there may be many more.

If you’ve looked carefully and determined that you aren’t already insured, or the coverage you are provided with is insufficient, there are three points to consider…

Questions to ask

The central question in relation to any sort of risk is ‘how much could it cost me?’ Weigh this up in relation to a) the worst possible outcome of the event, b) how likely the event is to happen, and c) how much money you have on hand.

A risk worth taking?

Consider for example the ‘extended warranties’ offered by many electronics retailers. These are often over and above the standard (usually 12 month) manufacturer guarantee.

A tablet retailing for $197 at Harvey Norman will jump in price to $326 with the addition of 3 years’ ‘product care’. That’s $129 worth of insurance, or $43 a year.

What is the worst that would happen if your tablet stopped working? You wouldn’t have a tablet anymore. It’s not like losing a limb. If you were using it for work purposes or otherwise needed one, you might have to buy another. And given the cost of electronics consistently decreases, in 6 months’ time, that $197 tablet might only cost $150, or $100. If you bought second hand, you could pick one up for a pittance. In fact, ebay currently has a refurbished tablet of the exact same make and model for $79. That’s $50 less than you’d pay in insurance at Harvey Norman.

How likely is the event to happen? Only you know how rough you are on your technology. I’ve had the same eReader for 10 years now, and my phone is now three. My phone before this one (a beautiful Firefox phone!) broke in a matter of weeks after I dropped it. But you can take steps to mitigate this. My electronics that have lasted have generally lasted because I’ve protected them. Not with extended warranties, but with screen protectors and cases. And these can be purchased inexpensively online. (My Firefox phone was an exception – no one seemed to make them). A $5 case and a $1 screen protector are much more affordable than a $129 policy.

How much money do you have on hand? I’d bet most people who can afford to buy a tablet can afford to replace it. If you’re tossing up whether to take out a $129 insurance policy, you obviously already have nearly two-thirds of the replacement cost of the device itself. It shouldn’t take too long to find the rest.

When it comes to your health…

On the other hand, when it comes to your home, or your health, these questions can have very different answers. With health care, the worst that could happen, physically, is of course death. Financially, if you live in a country like America (and of course, there is no country like America!) healthcare costs could bankrupt you. The likelihood of you needing hospitalisation will of course depend on your existing conditions, age, general health and fitness, future plans, risky activities etc. But few of us could pay for a major operation out of pocket.

Think of the travel example above. Few can afford the enormous fees (tens, hundreds of thousands, possibly even more) involved in airlifts and international medical treatments and repatriation. For the sake of saving a few hundred dollars, the risk simply is not worth it. (I always say, if you can’t afford travel insurance, you can’t afford to travel!)

Don’t be scared

It is precisely the very serious nature of illness (and indeed, death) which allows private health and the euphemistically titled ‘life’ insurance companies to prey on our worst fears. TV ads featuring distraught children on swings with no one to push them. Widowed mothers pouring over stacks of bills all marked in red.

In the next post, we’ll take the example of health insurance in Australia to explore how you can look at these often emotionally-charged and complex decisions from a more logical, calm perspective without it becoming overwhelming or scary.

]]>https://www.enrichmentality.com/do-i-need-insurance/feed/1Do I need to read this?https://www.enrichmentality.com/do-i-need-to-read-this/
https://www.enrichmentality.com/do-i-need-to-read-this/#respondWed, 28 Feb 2018 02:27:17 +0000https://www.enrichmentality.com/?p=1957How many times have you bought a new product and thrown away rather than read the instructions? Downloaded a new app and clicked ‘accept’ on the terms and conditions without reading them? Or opened a bank account without reading the eighty-five page ‘booklet’ that comes with it? (For what it’s worth, that’s not a booklet […]

How many times have you bought a new product and thrown away rather than read the instructions? Downloaded a new app and clicked ‘accept’ on the terms and conditions without reading them? Or opened a bank account without reading the eighty-five page ‘booklet’ that comes with it? (For what it’s worth, that’s not a booklet – that’s a book!)

The title for today’s post comes from the first page of an everyday bank account terms and conditions book. ‘Well done’, it says, ‘you made it to the first page – only 59 to go’.

But do you really need to read all that? And why do they make it so darn long if they want you to read it?

Unintelligible on purpose

Part of this is simply a result of years of training and the jargon that goes along with any specialisation. But part of this disconnect is intentional. It is in the best interests of the financial industry for its clients to lack confidence and a sophisticated understanding of financial ‘products’ – including debt. Why else would companies continue to use small print when most terms and conditions are distributed electronically nowadays – it’s certainly not to save on ink.

Linguistic accessibility

Over the past few decades, more councils and institutions have worked to make their services more accessible for people with a wide array of needs – installing ramps, providing braille and sign and interpreting services, better visibility and so on. There is still much more to be done. The same could be said of making legal and financial documents linguistically accessible – that is, ensuring they make sense to everyday readers in everyday language.

Sometimes, legal linguistic inaccessibility is obvious, argues Harrington, whose chapter in The Language of Money and Debt I blogged about in my last post. The use of technical terms, or Latin are glaring examples. But it is the words which appear familiar from everyday use, but differ in meaning in their legal usage, which are of more concern. ‘Money’ is one such example, defined by Hudson as a ‘perennial problem’ for lawyers. One text addressing the meaning of money, Mann’s (1938) The Legal Aspect on Money, now in its 7th edition, Harrington reports weighs in at a massive 891 pages. (I guess compared to that, eighty-five pages or so is a booklet!)

As Harrington concludes, although a real understanding of what money (and debt) means in a legal context may have to remain the domain of layers, ‘what can be achieved is a greater communication of the rights, or limits of them, which ordinary people have over their money: knowledge in itself will aid against injustice.’

TL;DR

For most of us, I hazard a guess, terms and conditions are a case of TL;DR – too long; didn’t read. One recent survey found that some documents now weigh in at the length of a short novel, and 73% of people admit they don’t read the full fine print. Of those who do bother, only 17% say they understand it.

The first contract I ever signed was a tenancy agreement when I moved away from home to attend university. I’d just turned 18. The landlord sat, bemused, as I insisted upon reading each page in full before initialing it. None of the other tenants in any of the many other apartments in the complex had ever done that, he said.

Just read it.

When we took out our first mortgage a little under a decade later, I sat at the kitchen table reading the much lengthier documents in full. This time, it was with a sense of dejection that perhaps came with age as opposed to any change in circumstance. I now realised that even if there were terms or conditions I did not agree with, there was very little I could do about it. As a prospective tenant – or as a prospective homeowner – you aren’t exactly in a position of negotiating power.

Even so, knowing what you are getting yourself into is vital, and can save you a lot of money.

For example, reading the terms and conditions of our income insurance meant we knew that once we were more than 12 months ahead in our payments there was little point to paying for it any longer. Although it was a great reassurance to have in the first year of our mortgage, since the insurance would not pay out until there was actually money owing on our loan, and was only good for 12 months, it quickly became useless to us since we were paying our mortgage down so rapidly. Without reading the contract in full, we might have continued paying for absolutely no benefit.

Boring, but important

Reading terms and conditions is tedious. According to another source, when signing up for products and services online, only 7% of people in Britain read the small print. Nearly 60% of people would prefer to read an instruction manual, or even their credit card bill. An incredible 12% say the phone book would be preferable. But it is vital. More than a fifth of those surveyed said they had suffered as a result of not reading the applicable terms, finding themselves locked into lengthy contracts or losing money by not being able to cancel or change bookings. And when it comes to social media, there is a whole gamut of other rights you may be foregoing. (If you have a Facebook account, make sure to read this HuffPost article too).

Plain English

When it comes to the (often exploitative) horrendously lengthy Terms of Service or End User License Agreements that many applications force upon users, there are at least the superb sites tosdr and TLDRLegal to help navigate your rights. I’d love to see something similar for the financial industry, but haven’t found anything so far. There are, at least, some companies who are taking it upon themselves to meet both legal requirements and the needs of customers.

Studying for my Diploma of Financial Planning I read through many a financial product’s terms and conditions, and by far the most down to earth was that of ING – whose question I borrowed for the title of this post. (By the way, if you are thinking about opening an ING Australian account, try the promo code ECJ150 and we might both get some cash, depending on what promotions ING are running. But I strongly recommend you always check a comparison site like mozo first to get the best deal for you!)

Have you come across any other companies that express themselves clearly? Let us know in the comments!

]]>https://www.enrichmentality.com/do-i-need-to-read-this/feed/0What is debt?https://www.enrichmentality.com/what-is-debt/
https://www.enrichmentality.com/what-is-debt/#respondWed, 21 Feb 2018 15:01:36 +0000https://www.enrichmentality.com/?p=1956One of the very first posts I wrote for Enrichmentality was titled ‘What is money?‘. But as I recently noted, reading The Language of Money and Debt made me consider the meaning of debt in more depth than I had previously. Of course, if you are in debt, the lack of money can seem overwhelming. […]

One of the very first posts I wrote for Enrichmentality was titled ‘What is money?‘. But as I recently noted, reading The Language of Money and Debt made me consider the meaning of debt in more depth than I had previously. Of course, if you are in debt, the lack of money can seem overwhelming. So today I’m asking ‘What is debt?’

There is a wealth of vocabulary associated not only with the possession and transfer of money – buying and selling – but also with the lack of money, indebtedness, and borrowing and lending.

The many meanings of debt – social, mental and financial

Debt can be a source of shame. Of worry. The cause of heart palpitations when the phone rings or the mail arrives. The reason you can’t sleep at night.

But debt can also be that peculiar kind of challenge that some people enjoy. Like the businessman who borrows more than he reasonably needs just so he has something to strive for. Debt can be a marvelous opportunity. Like the family who buys a house they could not otherwise afford to save for while renting.

In short, debt has many social and mental meanings as well as its financial one.

Likewise, ‘money’ has a variety of social and mental meanings as well as its financial meanings. Matters are further complicated by the fact that in English, the word ‘money’ refers not only to coins and notes, but also to payments and electronic transfers. According to Fox, in early modern Britain, a distinction was made between ‘real money’ (coins in circulation) and ‘money of account’ (the abstract system of measurement). Today, French maintains such a distinction in l’argent and la monnaie.

Language in conflict

The language that is used by everyday people in the community and by loan sharks, financial advisors, banking institutions, and counselors can often be in conflict. Sometimes, this is because we use the same word to mean different things. Other times, it is because we use different words to use the same thing.

Kate Harrington, in The Language of Money and Debt analysed occurrences of the word ‘money’ and found that it was much more likely to show up in legal texts than essentially any other kind of written language (adverts, fiction, news etc.).

Consider, for example, the 1770 case in which legal opinion was split over whether stock could be considered money, and hence be seized from a debtor. In a style of thinking similar to much of the discussion today surrounding Bitcoin and other crypto-currencies (and online economics more broadly), it was eventually ruled that stocks were a ‘new species of property’ and ‘not money’.

The language of debt and financial inclusion

Froukje Krijtenburg’s chapter in the same volume looks at how differences in the language of indebtedness may impact financial inclusion.

The UN secretary general defines ‘financial inclusion’ as ‘a lynchpin for achieving other development goals’. Yet 2 billion people are still outside the formal financial industry.

Sometimes this is because they don’t have enough money to open an account. In Australia too, account-keeping fees can be prohibitively high. Don’t put up with this – there are plenty of banks that have no fees. If you are currently paying fees, call your bank and threaten to change. I did about a decade ago, saving myself $600 so far – even more with interest.

But other times, as Krijtenburg’s study of the Kamba of Kitui (Kenya) shows, there are more social reasons. Including understandings of debt.

Here are some of the ways borrowing and lending are understood in Kamba society:

kūvoya/kūtetheesya (pray, ask for/assist): focuses on relationships between friends, relatives or acquaintances. Must be a genuine need on the part of the borrower. The lender is expected to assist unless there is a valid reason not to, with no interest, and ambiguity of repayment.

kūkwatya (lend): between relatives or friends. Spontaneous and short-term.

mūkilye (uplifting): between relatives, friends, neighbours or community members. Involves not only economic but social and mental support.

Social understandings of debt

It is a fundamental principle of the institutional banking system that the more money you have, the more you can borrow. But ‘If low-income and poor people expect to be able to borrow money according to their own understandings – which is when they are (temporarily) penniless – they will be disappointed by banks which refuse to give them credit because they do not have money in the bank.’

Krijtenburg suggests integrating some of the lexical items which people are already familiar with in order to promote formal financial services.

In short, it is not enough for us all to learn more about the financial system and the language of money. Rather, we must lobby for banks and financial advisors to work harder at acknowledging and responding to the understandings of money and debt that the communities they operate in hold.

Uplift

If financial inclusion – defined as participation in formal financial systems – really underpins other goals, then we ensure that banks meet people halfway. This may help banks get more customers (and hopefully decrease reliance on sometimes unscrupulous lenders). But it may even enrich the banking system for customers, if institutions incorporate notions of social and psychological support.

Let’s not merely lend money, let’s uplift one another.

What changes would you like to be seen made to the banking sector – and how the financial industry more broadly communicates? Let me know in the comments below!

In the next post, I’ll give some suggestions for navigating the maze of legalese and financial jargon as it currently stands.

]]>https://www.enrichmentality.com/what-is-debt/feed/0Is it okay to watch poverty porn?https://www.enrichmentality.com/okay-watch-poverty-porn/
https://www.enrichmentality.com/okay-watch-poverty-porn/#respondWed, 14 Feb 2018 04:14:45 +0000https://www.enrichmentality.com/?p=1924We all have our guilty viewing pleasures. Mine tend to be videos of people exploring abandoned places, extreme cake decorating, and trashy sitcoms. But when does one person’s guilty pleasure cross the line into another’s exploitation? Especially when it comes to matters of poverty, and so-called ‘poverty porn’? In the superb volume, The Language of […]

We all have our guilty viewing pleasures. Mine tend to be videos of people exploring abandoned places, extreme cake decorating, and trashy sitcoms. But when does one person’s guilty pleasure cross the line into another’s exploitation? Especially when it comes to matters of poverty, and so-called ‘poverty porn’?

In the superb volume, The Language of Money and Debt, Paterson, Peplow and Grainger examine the Channel 4/Love Productions program ‘Benefits Street’:

According to the authors, the regulatory watchdog in the UK received 950 complaints about Benefits Street. Most claimed it ‘misrepresented and vilified benefits claimants’.

‘Poverty porn’

Benefits Street, like the similarly titled Struggle Street produced by SBS in Australia (which just entered its second season) has been called an example of ‘poverty porn’.

The word ‘porn’ of course comes to us through the word ‘pornography’, the combination of two Greek words: porno- (concerning harlots) and graphos (writing). It literally means ‘writing about harlots’.

These days, however, ‘porn’ is used as a suffix in popular terms such as ‘food porn’ (delicious-looking food), or hashtags like #skyporn (pictures of sunsets and the like) – not necessarily with any sexual or guilty connotations.

When it comes to ‘poverty porn’, however, the use of the term ‘porn’ appears quite deliberate. It evokes notions of not only the guilt or shame the viewer is meant to feel, but also, the exploitation of the subject.

Poverty porn is defined by Paterson, Peplow and Grainger as ‘a televisual genre that follows the lives of real people who have been selected for inclusion based on their socioeconomic circumstances’.

Judging the Rich vs. the Poor

It’s important to note, I believe, that it is specifically their lower socioeconomic status which makes these real people considered worthy of inclusion in ‘poverty porn’. Shows like ‘Keeping Up with the Kardashians‘, previously examined here on Enrichmentality, or ‘The Simple Life‘ where stars are the object of interest on the basis of their high socioeconomic status (and are in a position of power to veto how they are depicted) are certainly not part of this genre.

The participants in Paterson et al’s study made judgements about how those they saw in Benefits Street spent their money. But they also made similar moralistic judgements about the extremely wealthy social elite. Both the ‘under class’ and this super-rich class were viewed as ‘immoral because they live outside of normal society‘.

Perhaps that is why these shows are so popular?

Are you taking the piss?

Paterson, Peplow and Grainger’s study is valuable in that they held focus groups with not only ‘average’ viewers, but with benefit recipients. Those receiving benefits frequently did not identify with those depicted in the program. However, one participant rejected the notion that the program was ‘taking the piss’ in its depiction of welfare recipients. They argued the stars were ‘just living their life and that’s the way real life is.’

Having watched Struggle Street when it aired in Australia, I can attest to the claims that it can be educative. While I already had some idea of the struggles those in particular low-income areas face, this program highlighted for me in stark relief just how important social capital can be.

However, at the same time, it is undeniable that just like the more ‘traditional’ porn of the sexually exploitative variety, it is the very imbalance of power between the subjects and the producers and viewers which makes their production possible. The sex industry broadly relies upon widespread child abuse in order to function. The vast majority of sex workers were abused sexually, physically, and/or emotionally as children. When it comes to pornography, many ‘stars’ were victims of incest. The ethics of any industry which seemingly by necessity draws the majority of its participants from such dire situations are questionable. Can the same be said of poverty porn?

The viewer vs. the viewed

Given the power imbalance between the viewed (who frequently do not have the final say on how they are presented) and the viewer (who can watch and judge behind the safety of a screen), even the educative potential of such programs may be questioned.

Furthermore, just as sexual pornography has been linked with normalizing more extreme, unhealthy and violent behaviour in viewers who see risky actions presented as ‘normal’, watching ‘poverty porn’ may provide people with a skewed version of what is ‘normal’ among those on benefits. After all, just as risky, taboo, and often violent or unhealthy sexual relationships are considered more ‘exciting’ viewing than loving, mutually respectful ones, someone dutifully purchasing an array of healthy foods to feed their children, and using their welfare check to pay their bills on time will hardly rival someone purchasing crack and setting a car on fire when it comes to prime time viewing.

There are, of course, more and less ethical ways for researchers and film makers to work with underprivileged populations. This includes taking an ethnographic approach. Permitting the subjects of the film to be more than just subjects, but true actors with agency. Allowing participants to make decisions about how they want to be represented, rather than having someone else choose the most extreme examples and stereotypes and airing those. Louis Theroux’s documentaries (which have covered, among other topics, both poverty and pornography) spring to mind. However, ethical questions appear inevitable. In the case of poverty porn, even if the adults participating want to take part, I do wonder (as I wonder in the case of every parent who over-shares their child’s life on social media) how the children depicted will look back on the program.

Is it art or porn?

Ignoring poverty and only ever depicting the struggles of the middle class is not the answer. But neither is sensationalising or denigrating the poor (or the rich for that matter) for the sake of entertainment.

A show which depicts those in poverty is not necessarily ‘poverty porn’, just as a show which includes sex or nudity is not necessarily ‘pornography’. The degree to which poverty or sexuality is presented in a stereotyped, exaggerated, exploitative way is what makes it so.

]]>https://www.enrichmentality.com/okay-watch-poverty-porn/feed/0What does the media (& the government) tell us about poverty?https://www.enrichmentality.com/what-does-the-media-the-government-tell-us-about-poverty/
https://www.enrichmentality.com/what-does-the-media-the-government-tell-us-about-poverty/#respondTue, 06 Feb 2018 15:29:52 +0000https://www.enrichmentality.com/?p=1937What does ‘welfare’ mean to you? Or ‘benefits’? Do you associate these words with phrases like ‘welfare queens’ or ‘benefit cheats’? Does the image of a ‘bogan’ (Australia) or a ‘chav’ (UK) smoking a cigarette out the front of a government flat spring to mind? Our thoughts on poverty (and people in poverty) are influenced […]

What does ‘welfare’ mean to you? Or ‘benefits’? Do you associate these words with phrases like ‘welfare queens’ or ‘benefit cheats’? Does the image of a ‘bogan’ (Australia) or a ‘chav’ (UK) smoking a cigarette out the front of a government flat spring to mind?

Our thoughts on poverty (and people in poverty) are influenced not only by the language we read or hear, but through a variety of other cues. Semiotics is the study of such meaning-making, and helps us understand how we can be influenced by a range of different signs.

Manufacturing Consent

It is 30 years since the publication of Edward S. Herman and Noam Chomsky’s book Manufacturing Consent: The Political Economy of the Mass Media. I first saw the documentary based on this book many years ago. It remains one of the most influential I have ever watched. (Here’s an excellent summary:)

In essence, Herman and Chomsky argue there are five filters of editorial bias:

Size, Ownership & Profit Orientation. Because mass-media outlets tend to be large corporations operated for profit, they must cater to the interests of the controlling investors.

The Advertising License to Do Business: Since major media outlets cannot survive without advertising revenue, they must cater to the biases of their advertisers.

Sourcing Mass Media News. Those who help subsidize the mass media not only influence its content, but often become sources for news, at the expense of other opinions.

Flak and the Enforcers. The media cops ‘flak’ when it receives negative responses, often from a think tank, to a statement or program, which can be expensive (loss of ad revenue, costs of legal defense, etc.) The prospect of copping flak is a powerful deterrent to reporting certain opinions and facts.

Anti-Communism. Used as a major social control mechanism during the Cold War, later replaced by the ‘War on Terror’.

The Language of Money in Advertising

Most of us recognise advertising is cleverly designed to influence us to buy things, and commercial apps are one example of this. We’ve already looked at the money messages present in children’s apps here on Enrichmentality, but in the extremely interesting new book The Language of Money and Debt, Brookes and Harvey consider apps targeted at adults produced by the ‘fringe economy’. The ‘fringe economy’ is represented by aggressive financial services that charge very high interest rates. Through advertising – and more recently, apps – companies utilise a variety of discursive techniques to encourage customers to borrow potentially more than they can afford.

Apps such as the ‘Cash Converters’ app, Brooks and Harvey report, refer to debt in euphemistic terms. They describe loans as ‘cash solutions’. Highly important terms like ‘annual percentage rate‘ are given as acronyms (APR) and not explained.

And it’s not just the language. The images, too, can manipulate users’ perceptions. Rather than depicting the types of sentimental and low-value items usually pawned (46% of which customers do not get back), ads show relatively expensive luxury items.

Colour, also, is manipulated by both banks and fringe operators alike. Blue stands for trustworthiness and security, utilised by banks. Meanwhile, pawnbrokers use warmer colors to convey invitation and warmth.

Government Messages

Of course, it’s not only commercial interests that send the public messages about money and poverty. As Herman and Chomsky point out, the government does this too. According to Roberts, in his examination of the language of ‘welfare dependency’ and benefit cheats’ and ‘scroungers’, these are examples of state-sanctioned language.

Unsurprisingly, how the media describes welfare or benefit recipients appears to differ based on the government of the country you’re in. (Just as Herman and Chomsky would predict) Research by Larsen and Dejgaard found public discourse about ‘poor and welfare clients’ is ‘harsher’ in liberal regimes, and ‘softer’ in social democratic ones.

But why?

Just like products, policies are marketed to the public, ‘sold’ to us through the media. This includes economic policy. Roberts points to the 2008 Global Financial Crisis as an example of an event used to market a particular type of economic policy.

Governments used the 9/11 attacks in the US and the ‘War on Terror’ to push through legislative changes threatening privacy and freedom in not only the States but Australia, the UK and elsewhere. Likewise, Roberts describes the GFC as ‘the perfect cover for a number of actions’. Currently, these actions include the roll-back of the welfare state and a variety of ‘austerity’ measures. This is our modern-day ‘Cold War’ as Chomsky highlighted.

Roberts’ analysis is based on the Department of Work and Pensions campaign ‘Benefit Thieves, We’re Closing In‘:

But, as Paterson, Peplow and Grainger’s chapter on the television genre of ‘poverty porn’ illustrates, popular television shows draw upon similar stereotypes. Is this symptomatic of the extent to which government and media biases overlap?

In the next post, we’ll look at the ethics of some popular shows and their depictions of poverty (and wealth).

But next time you hear a term like ‘dole bludger’ or ‘welfare cheat’, think about what message the user is trying to send. How are they trying to manipulate your thinking and future reactions? And don’t stop at money messages. When the government calls asylum seekers who arrive by boat ‘illegal’ or ‘queue jumpers’, question that too. Ask what biases are at play.

Language matters.

What do ‘welfare’ and ‘benefits’ mean to you? Let me know in the comments below.

]]>https://www.enrichmentality.com/what-does-the-media-the-government-tell-us-about-poverty/feed/0Which debt should I pay off first?https://www.enrichmentality.com/debt-pay-off-first/
https://www.enrichmentality.com/debt-pay-off-first/#respondWed, 31 Jan 2018 07:52:55 +0000https://www.enrichmentality.com/?p=1913The financial sphere seems all abuzz with The Barefoot Investor‘s book. Multiple friends have asked me about it. It’s the number one non-fiction book at both my local library and bookstore. But as happy as I am to see a finance book so popular, is it really ‘the only money guide you’ll ever need’? Will […]

The financial sphere seems all abuzz with The Barefoot Investor‘s book. Multiple friends have asked me about it. It’s the number one non-fiction book at both my local library and bookstore. But as happy as I am to see a finance book so popular, is it really ‘the only money guide you’ll ever need’? Will following Scott Pape’s ‘domino’ advice (or Dave Ramsey’s ‘snowball’ advice for that matter) really help you get out of debt for example? The best way to pay off your debt is likely to be something else entirely…

Before I tell you what that is, consider the following scenario:

You are a fire chief, in charge of deploying three units to put out fires. There are three currently burning. One is a tiny piece of paper in the middle of a vacant car park, with no flammable material around, just smouldering. Another is an enormous, but empty, shed. And the third is a house fire, with an elderly man and his three small grandchildren trapped inside, raging violently.

What do you do?

a) Send all of your trucks to the fast-burning family home.

b) Send all of your trucks to the slow-burning empty shed.

c) Send all of your trucks to the smouldering piece of paper.

d) Send one truck to each fire.

Hold that thought.

Now, let’s take a look at what Pape is recommending.

In his section titled ‘Everything you wanted to know about paying off your debts – in one-and-a-bit pages’ Pape answers six important questions about debt. Most of these, I have no quibble with (for Australian readers at least – the appropriateness of these answers will differ wildly depending on where you are in the world):

Should I pay off my HECS-HELP debt? (I assume he means ‘early’ rather than ‘at all’): ‘No, it’ll look after itself’. (For those outside of Australia, a HECS-HELP debt is a loan from the government to cover tertiary education.)

What should I do about my car loan?: ‘Get rid of it.’

Should I worry about what’s on my credit file?: ‘Yes. But don’t get all freaked out about it.’

Dude, Visa has a hitman looking for me – should I go bankrupt: ‘I only recommend bankruptcy in the most extreme circumstances’ (a hitman would seem pretty extreme to me…)

But the other two, I have issues with. And these are not problems limited to Pape, but to many others of his ilk – writers of popular guides which, whilst easy-to-read, motivational, and entertaining, do not always dispense the best financial advice.

These questions and answers have to do with Pape’s ‘dominoing’ system, which is very similar to Dave Ramsey’s ‘snowballing’ system.

Essentially, the system works like this:

List all of your debts.

Order them from smallest to largest.

Single out your smallest debt. Pay that off first.

Move on to the next smallest debt.

Pape likens debt to a ‘financial fire’, and I think he has his metaphor right. As Mr. Money Mustache says, debt is an emergency, one which needs our immediate attention. However, I don’t think Pape or Ramsey have the method right.

Then turn the hose to the next debt, and the next, until they’re all put out.

But remember: while it’s great to put your spare money (Fire Extinguisher) into paying off your debts fast, always make the minimum repayments on all your debts (such as a monthly payment on your credit card) using your Daily Expenses money.’

Let’s think about this debt proposal, starting with the tools:

If you were a fire fighter, would you always use the same fire extinguisher for every fire? Regardless of its size, type, or intensity?

Or would you use a small electrical fire hand-held extinguisher to put out a fire in a computer? A large fire truck to put out a fire in a house? A plane to extinguish a bush fire?

Now, let’s take a look at the method:

If you were a fire chief in charge of fighting multiple fires, would you send ALL your crews to put out the SMALLEST and potentially least dangerous fire first? Just so you can feel good about there being one fire less?

Or would you look at which fire was burning the most intensively, that had the most potential to damage people and property, and which looked as if it might rage out of control, and allocate more of your resources to that?

My suggestion is that you be a smart fire chief when it comes to your finances too. Nobody will congratulate a fire chief who successfully extinguishes a burning piece of paper while a family perishes. Starting with the smallest debt does NOT make mathematical sense.

The single BEST way to pay off your debt quickly is to pay off the amount with the highest interest rate, NOT loan balance first.

Here’s why:

Imagine you have a few different debts – a home loan of $400,000 at 4.5% interest, a personal loan of $20,000 at 16.5%, and a car loan of $15,000 at 8.5%.

That’s a total of $435,000 in the red.

Scenario 1: The Snowball/Domino Method

According to the snowball/domino method, we should start with the lowest debt to get the ball rolling (or the dominoes falling) – the $15,000 car loan.

If your monthly take home pay is $5,000, then according to Pape’s method, you should devote 20% of this ($1,000) to ‘hosing off’ your debt.

Year 01: Car Loan

Starting with the smallest debt – the car loan – you make the minimum payments of around $215, plus the extra payments of $1,000 (whilst still making the minimum payments on your other debts).

At the end of year one, there’s just a little over $2,300 remaining on your car loan. The end is in sight!

After the minimum payments on your other loans, your total debt is now $413,048.66 – a reduction of almost $22,000! Without the extra payments, you’d still owe over $424,000.

Year 02: Personal Loan

In February, you make the final payment on your car loan. The balance is now so tiny, you don’t even need to use the whole $1,000 you’ve set aside for extra payments. You throw the remainder at the next smallest loan – the personal loan – instead. Now, instead of having three outstanding debts, you only have two to tackle. Feels great, doesn’t it?!

By the end of the year, not only have you eliminated your car loan, but there’s only a little more than $6,500 left on your personal loan. Incredible!

After the minimum payments on your home loan, your total debt is now down to $389,221.49 – you’ve broken the $400k mark and then some!

Year 03 onwards: The Home Stretch

In May, you make the final payment on your personal loan, and once again, you have money left over to throw at what is now your only debt remaining – the home loan.

At the end of the year, your debt is just $365,872.56.

Continuing to make $1,000 extra payments each month like clockwork, you eventually pay off your final debt in May of year 16. Nine and a half years ahead of schedule. Woo-hoo!

BUT

Even though this is a great saving, there is a much better way to do it.

Let’s see what happens when you put out the most intensely burning fire that has the most potential to do damage (i.e. the one with the biggest interest rate) first:

Scenario 2: A Better Method

Year 01: Personal loan

Your personal loan’s interest rate of 16.5% almost twice as much as your car loan, and almost four times as high as your home loan. It is obviously the most urgent fire.

Let’s start off by attacking that loan first.

At the end of year one, there’s just a little over $7,000 remaining on your personal loan. Not quite as motivating as the much smaller sum remaining if you’d tackled the car loan instead, but let’s take a look at your overall situation now:

After the minimum payments on your other loans, your total debt is now $412,658.29. That’s almost $400 less than if you followed the snowball or domino method.

Sure, $400 might not be much. But over time, it adds up to a lot.

And the brilliant thing?

You haven’t paid a cent more.

In both scenarios, you devoted the exact same amount – the minimum payments on all three loans plus $1000 extra per month.

That difference is what happens when you focus on extinguishing the debt fire which is costing you the most first.

Year 02: Car Loan

In June, you make the final skerrick of a payment on your personal loan, and throw the rest onto your car loan. It’s taken a little while longer – four months, to be exact- but now you have only two debts left too.

By the end of the year, not only have you eliminated your personal loan, but there’s only a little more than $5,100 left on your car loan.

Let’s compare the two scenarios here. The amount owing on your home loan is the same in either case, so let’s focus in on non-housing debt: using the domino/snowball method, at the end of year two you would have one non-housing loan, with just over $6,500 remaining. With this method, you also have just one non-housing loan, with just over $5,100 remaining. That’s an almost $1,400 difference. Enough to make an entire extra extra payment – and then some.

Year 03 onwards: The Home Stretch

In May, you make the final payment on your car loan, throwing the rest of your money on your final remaining debt – your home loan. Despite the slower start in terms of knocking down debts (but the much faster repayment of the debt in dollar terms) you’ve now caught up.

At the end of the year, your debt is just $365,101.89. Over $700 less than if you’d gone with the domino/snowball method.

Continuing to make $1,000 extra payments each month like clockwork, you eventually pay off your final debt in April of year 16. You don’t even need to use the whole $1,000, pocketing a sweet $860 for yourself.

Scenario 1 sees you paying $168,709.03 in interest over the 16 and a bit years.

Scenario 2 sees you paying $166,464.09 over a slightly shorter period of time, or around $2,245 less.

Sure, maybe that’s not exactly the big bang you were waiting for. But wouldn’t you prefer that two grand to line your pocket, instead of the bank’s?

But wait… there’s more!

Of course, it’s not just the method I have quibbles with, if you remember, but the tools.

Just like retirement planning, there is no one percentage that will be applicable for everyone when it comes to debt reduction. Someone with a lot of debt, but with low living expenses and a lot of income, would be a fool to restrict themselves to a 20% ‘fire extinguisher’. Others may struggle to scrape up that amount.

Suffice it to say that if you devote more of your income to paying off debt than the somewhat arbitrary 20%, it will disappear faster. This is hardly news. However, let us take a look at another missed opportunity in the scenario above: the minimum payments.

Imagine if every time you paid off a loan you added the amount you used to pay to that debt as a minimum payment to your ‘extra’ payments on the next loan. After all, if you were a fire chief with a crew who had just finished putting out one fire, but there were still other fires raging, wouldn’t you ask them to help out? (Bear in mind that money is infatiguable and not subject to work regulations!)

Scenario 2.1… a better method with better tools!

Let’s take a look at what happens in this enhanced scenario, following the payment of the first loan:

Year 02: Car Loan

Once again, in June of the second year, you pay off your personal loan. But this time, you add the minimum payment you used to make to your arsenal. This brings your extra payment for the car loan up to $1,376.48.

This time, by the end of the second year, there is a minuscule $2,500 remaining on your non-housing debt (compared to $6,500 and $5,100 in the other scenarios).

Year 03 and beyond: The Home Stretch

Thanks to your increased payments, this time, you eliminate all non-housing debt by the end of February – several months earlier than the other scenarios.

You add the money you used to devote to paying the minimum payment for your car loan to the minimum payment for your personal loan, plus the original extra payment, for a new total of $1,592.36.

By the end of the year, your total debt is $358,576.48 (compared to $365,872.56 or $365,101.89 in the other scenarios – approximately $7,000 less debt).

Continuing to make $1,592.36 extra payments each month like clockwork, you eventually pay off your final debt in the beginning of August in year 12, with over $1,200 to spare.

Not only have you cut the total period of your indebtedness by four years in comparison with the previous scenarioes (and imagine what you could do with a spare $3,815.69 per month for those four years!) but you’ve effectively slashed the bank’s time line by half.

To recap:

Scenario 1 sees you paying $168,709.03 in interest over the 16 and a bit years.

Scenario 2 sees you paying $166,464.09 over a slightly shorter period of time, or around $2,245 less.

While the enhanced Scenario 2 sees you paying $138,049 over just 12 and a bit years – that’s a colossal $30,000 less.

To consolidate, or not to consolidate…

Now, the other bit I have a quibble with is Pape’s lukewarm advice regarding consolidation. Regarding whether you should your debts, he says:

“Maybe, but if you do, just make sure you only do it through a bank or a credit union (I don’t disagree with this at all)… And understand it’s not a magic wand. What’s keeping you from paying off your debts once and for all is your pattern of spending money. The people who ditch their debts for good have one thing in common: they change their attitude”

This is where I begin to have issues. Attitude is certainly important – I’ve talked a lot on Enrichmentality about the importance of how we approach money – that’s why this site has ‘mentality’ in the name. But it’s not just about attitude. It’s also about action. Including making smart money decisions.

Not everyone in debt is there because of frivolous spending habits or bad decisions. It isn’t always ‘your pattern of spending money’ that is the problem. Sometimes people have sick kids. Lose their job. A partner dies. A house that needs repairing. A car that breaks down. Bad stuff happens. It’s not all jetskis and caviar and handbags.

Assess your unnecessary spending

If you are in debt, it is important that you assess your unnecessary spending. And I mean everything. Do you go out to the movies or have a paid TV or streaming service? That’s unnecessary. Make use of your local library and watch free-to-air and YouTube. Chances are you’ll learn more. Do you go out for coffee? That’s unnecessary. Making your own costs next to nothing. Do you drink soda? That’s unnecessary. Water from the tap is much better for you, and almost free. Do you buy fancy brands of anything? There’s plenty of time for brand names later once you don’t have a raging fire of debt to put out.

By all means, do these things. Cut out everything that is unnecessary and watch your debt melt away.

But if you are really struggling, there’s no sense not consolidating your debts just out of principle. Punishing yourself with higher than necessary interest rates isn’t going to make your debt go away any faster. Debt consolidation isn’t for everyone – you may not be eligible, or the fees and charges may make it not worthwhile. But you shouldn’t rule it out.

So if it’s not the best method, why do Pape and Ramsey

recommend it?

I suspect the reason Pape cautions against consolidation has to do with the fact that his system simply wouldn’t work without multiple debts. It’s based on the motivation you can attain by kicking each one to the dust. If you have one big debt, it’s going to take a long time until you get rid of it completely.

Which means that it’s not going to be great advice for anyone who has already consolidated, or anyone who has only one debt already.

It also likely has to do with bringing about some change in you – getting you to face the consequences of your past spending. (At the expense of paying higher interest than necessary).

In theory, the debt-snowball method is motivational. The fewer creditors you have chasing you, the less stressed you feel. Each time you see a ‘balance paid off in full’ notification, the more accomplishment you feel. Research even suggests that debt-snowballing is the way people tend to deal with debt naturally – even without having read any ‘financial advice’.

But that same research shows that those who use debt-snowballing, for all the reasons I’ve outlined above, end up with worse financial outcomes than those who use the method I’m suggesting.

If you’re tempted to follow Pape or Ramsey’s recommendations when it comes to debt, remember, there’s a reason it’s called the ‘debt snowball’ method. Instead of making your debts smaller, it may well make them bigger if you have high-interest loans from unscrupulous or payday lenders with low minimum payments.

What should I do?

Ultimately, what matters is not how many debts you have, but how much debt you have.

I would much rather have three debts totaling $5,000 than ‘just’ one debt of $10,000.

Pape and Ramsey’s advice is attractive in its naturalness (as research shows, we don’t even need to buy a fancy book to figure it out – it’s how we tend to pay off debt without any guidance) and its simplicity. It fits on a bit over a page.

If you’ve had the patience to follow this 3,000 word explanation, I suspect you’ve probably got what it takes to use the method I propose above, which will see you out of debt faster and save more money – 4 years and $30,000 in this example. But remember, this method works for all debts. The shortest method is always to pay the highest interest rate first.

Switch your focus from the number of debts you have to how many dollars you owe.

On the other hand, if you’ve found yourself drifting off, getting bored or not following, maybe this isn’t the right method for you. Of course, it could just be my rambling!

Pape’s and Ramsey’s advice may not be the BEST method available to get rid of your debt, and as research suggests, may keep you in debt longer than necessary. However, it IS better than nothing.

I would recommend it if:

You have already given the other, better method a go and found you lack the will power to keep going.

AND you have investigated consolidation and found it’s not for you.
OR you have lots of small debts that you can knock over quickly to build psychological momentum.

Both Pape and Ramsey are writing for a popular audience, targeting the ‘typical’ person who – as we know – tends to lack willpower when it comes to spending and saving. They also make assumptions about how much money the ‘typical’ reader has at their disposal which may or may not match your reality.

In my opinion, it’s even more important for those of us who don’t have giant salaries to make smart financial decisions. Those with higher incomes can better afford to pay off their debts inefficiently. But ultimately, all of us should want to put our money to work in the most effective ways possible.

]]>https://www.enrichmentality.com/debt-pay-off-first/feed/0How do we talk about money (and debt) everyday?https://www.enrichmentality.com/talk-money-debt-everyday/
https://www.enrichmentality.com/talk-money-debt-everyday/#commentsWed, 24 Jan 2018 05:18:51 +0000https://www.enrichmentality.com/?p=1909When I first received the wonderful book The Language of Money and Debt, I was struck by the title.I’ve been thinking aloud about the language of money here on Enrichmentality since mid-2016. But I’d never considered the language of debt separately. Debt, globally, is an enormous issue. In the UK, Kinloch, Little and Morawiec estimate […]

When I first received the wonderful book The Language of Money and Debt, I was struck by the title.I’ve been thinking aloud about the language of money here on Enrichmentality since mid-2016. But I’d never considered the language of debt separately.

Debt, globally, is an enormous issue. In the UK, Kinloch, Little and Morawiec estimate that over 16% of the population are over-indebted. (At least three months behind with their bills in the last six months, or feel heavily burdened by debt).

Talking about money and debt

How we talk about money – and not having money or being indebted – is very important. Yet as Liz Moor points out in the same volume, sociolinguists still do not have a clear idea of how and why people talk about money, and, to what extent this talk of money and debt shapes their beliefs and behaviours.

Watch your language!

As a society, we tend to be preoccupied with the rich and the famous. We seem to believe rich people are ‘worth’ more than poor people.

Consider how we say a person who possesses a lot of wealth is ‘worth $5 million’. Yet, actually obtaining, building and holding on to wealth is ‘distasteful’.

As we discovered in the previous post in this series, being wealthy is often associated with generosity, and generosity with goodness. Meanwhile, poverty is associated with meanness, and meanness with badness.

Our language is important. As Sally McConnell-Ginet, and one of my former colleagues, Farzad Sharifian, highlight, we use language as a ‘cultural storehouse’ for our cultural cognitions and conceptual baggage.

Remember, rich people aren’t better than poor people

To explore these concepts in relation to money, debt and language, Mooney and Sifaki examined data from the Historical Thesaurus. They concluded that the word ‘mean’ was associated with small things. Small amounts. Closed or clenched body parts. Lower class. Poor/dirty appearance. Taking, keeping and holding.

They contrast with much more positive terms like ‘big hearted’, ‘open handed’, ‘generous’, ‘bounteous’ or ‘handsome’ associated with wealth.

The authors conclude that

‘Being careful with money is not, for the most part, positively regarded. In contrast, being generous is associated with large amounts of matter, open hands, high birth and class, a positive appearance and moral character and the willingness to give rather than retain.’

Or, as they rephrase it ‘the collective conceptual baggage here suggests that to be rich is to be good and to be poor is to be bad’. This, Mooney and Sifaki suggest, is seen in the ongoing demonisation (and criminalisation) of the poor.

Many of us value ourselves relative to how much money we have. Often we even use talk about money as a metaphor to discuss other things. This includes our relationships, and our estimations of others. As Liz Morrish demonstrates, Neolibral thinking has invaded so many spheres of everyday life – including the education system – that it is now taken-for-granted ‘that all conduct is economic and all spheres should be monetized’.

Nor is how much you don’t have

At the other end of the scale, Moor’s examination of the Mass Observation Archive (a repository of written observations of daily life by ordinary people) reveals that the opposite can be true too. Children can interpret a lack of parental spending as a lack of their own value. Especially where child support is concerned. As one respondent wrote

‘I think my father sent 10/- a week for my keep. I obviously wasn’t worth much – he never acknowledged me’.

Many parents try to hide their money worries from their kids, and even avoid discussing money with them entirely. However, research shows that children do often hear their parents arguing about money, and know when there are financial concerns in a family. These findings suggest children receive important messages about their own value (and that of others) from their parents’ money talk and behaviours. Worryingly, they may carry these views – whether of inflated importance, or self-depreciation – throughout their teens and even into adulthood.

Social services and money talk

The notion of debt, also, is deeply tied to ideas of morality. The discussions we have with bank employees or financial planners or welfare officers are unlike other institutional conversations in this sense. It is easy to feel judged when talking to others about money – and especially about debt. Hydén, quoted by Moor, highlights the moral sensitivity of money talk, emphasising that social workers should ensure interactions do not ‘result directly or indirectly in a questioning of the client’s moral character.’

Creditors and money talk

Anna Custers’ examination of debtors’ emotional reactions to communications with creditors highlights just how stressful indebtedness can be. One respondent, Elly, reported that the mere possibility of receiving a threat is stressful:

There is nothing more frightening than some day, you hear all these horror stories don’t you, about people knocking on your door, people ringing you up for money and, you know, getting into that trap.

For some people, Custers argues, it doesn’t even matter if they open an envelope or not. The mere arrival of an envelope in the mail (especially one with a window or red text, I would guess!) is enough to trigger the emotional responses associated with their debt problem.

Pressure from creditors evokes a range of emotions, from anger to worry and anxiety in debtors. Precisely the emotions unscrupulous debt and money-managing services leverage to entice new clients. I remember seeing TV ads for one popular service in Australia which even used the sound of a phone urgently ringing to simulate the panic one might feel when expecting a creditor to ring. Even unburdened by consumer debt, the ads made me feel anxious. I can only imagine how they might make someone expecting a threatening call at any moment to feel.

Bringing it all together…

If you work in social services or finance or for creditors, remember the mere presence of an envelope with shouting red text or a clear envelope, the ring of a phone, or the mention of the word ‘debt’ can set a debtor into a downward spiral of negative emotions. Be careful with your language, and work towards a payment plan that works for both parties.

If you are a parent, consider the messages you are sending your kids not only about money, but about themselves through discussion of finances. Make it clear that how much you spend on them (a lot or a little) is not a judgement of their value. Children who receive more at Christmas are not inherently better than those who receive nothing. (Contrary to myth!)

If you are in debt, remember that there are many not-for-profit debt management and financial counselling services. Always check these before deciding to sign up for a for-profit service. While some customers of debt management services are happy, many end up worse off after paying all of the associated fees and charges.

Furthermore, while any service which requires you to hand over control of your income and bills to another company may sound tempting to just forget about it all, you’ll never be in a position to learn if you never try it yourself.

If you’ve been avoiding your finances, check out this post. In the next post, we’ll take a look at the hands-down best way to pay off your debt. And it very likely isn’t what you think it is!

]]>https://www.enrichmentality.com/talk-money-debt-everyday/feed/2Can you succeed financially with kids?https://www.enrichmentality.com/can-succeed-financially-kids/
https://www.enrichmentality.com/can-succeed-financially-kids/#respondWed, 17 Jan 2018 04:55:44 +0000https://www.enrichmentality.com/?p=1878Recently, I caught up with someone I hadn’t seen for a long time. Two decades, in fact. And they asked me what I’ve been doing. I gave them the canned version of events, ending with my most recent news (that my husband and I had left our jobs a year and a half ago and […]

Recently, I caught up with someone I hadn’t seen for a long time. Two decades, in fact. And they asked me what I’ve been doing. I gave them the canned version of events, ending with my most recent news (that my husband and I had left our jobs a year and a half ago and are traveling the world). Their response? ‘It’s much easier when you don’t have kids.’

My post today is not only for those who have kids or who want kids, but for those who don’t have children and who hear comments like the above, that it’s ‘much easier when you don’t have kids’.

Is it easier to be financially free if you don’t have children?

Of course, this is true.

But the same could be said of many factors.

For example, it would have been much easier for us if we’d had much higher salaries. If we lived in a city with lower housing costs instead of one of the most expensive in the world. Maybe if we’d trained in finance-related fields earlier on. Or if we’d simply gotten started earlier.

It would have also been much easier if we’d known someone who had retired early that could advise us. If we had families who gave us a house, or a so-called ‘loan’ that didn’t need to be repaid. (As recent reports reveal, the ‘Bank of Mum & Dad‘ is now the 5th largest lender in Australia.) If we’d inherited a fortune. Or if we won the lottery.

In other words, there is a whole slew of factors, both under your own control, and out of your own control. Having or not having children is not the only factor. I’d argue it’s not even the most significant one.

The vast majority of Double Income No Kids (DINKs) couples do not retire early. Clearly, simply not having children does not guarantee financial freedom. Even more importantly, there are many couples, including single income couples, who have children and retire early. So the two are not mutually exclusive.

So… how can families be financially free?

For this reason, Paul Terhort’s Cashing in on the American Dream: How to Retire at 35 is a refreshing read. It devotes an entire chapter to ‘Retiring with Kids’. This now sadly out-of-print book begins its chapter on families with a very familiar and depressing picture of the ‘average’ family in the 1980s. And it doesn’t sound like things have changed much! Everyone in the family, Terhorst says, was living in their own bubble (and we couldn’t even blame iPads back then!).

Terhorst drives home the message that ‘your kids need you now’, making a good case for retiring early if at all possible. Mr. Money Mustache, who is both a parent and an early retiree himself, makes many of the same arguments.

Budgeting for early retirement for a family begins the same as budgeting for a couple or single – and it starts with working out a daily spend amount. Terhorst budgets US$11 per child ($14 AUD), or $5,000 ($6,300 AUD) per year.

Now, I know some will complain this is clearly ludicrous, and Terhorst himself acknowledges that some people will spend $5,000 on a 6-year-old’s birthday party alone.

Surely $5,000 a year is impossible now?

Although Terhorst was writing in the 1980s, and prices have certainly increased, he was targeting the top 20% of income earners. As a result, the figures hold up surprisingly well for those of us who aren’t in this category. Incredible as it may seem, many of the parents on the Simple Savings forum I know manage this. It’s also important to consider that the poverty line in the US for a single person is $12,060. For a couple, it is $16,240 (so just $4,180 more). And for a couple with a child, it is $20,420 (another $4,180 again). So $5,000 per child is approximately 17% higher than the poverty line.

Mr. Money Mustache, raising his son in the current decade, calculates that between the ages of 0-2, it cost him and his wife less than $300 a month (or just $3,600 a year) to take care of their son. Nowadays, their entire family budget comes in at around the ‘poverty line’ figure for a couple with a child. (Although they live a very upper-middle-class lifestyle).

Financial independence and kids

The one piece of advice I had trouble with in this chapter was on ‘paying for school’. Now, I know we (at least currently!) have quite a different system here in Australia, but I don’t agree with Terhorst’s suggestion that readers ‘have a heart-to-heart talk with Johnny’s grandparents. They may be willing to pay for Johnny’s education’.

Terhorst acknowledges ‘it’s a safe bet that Johnny’s grandpa and grandma would rather see you keep working’. I don’t think this is unreasonable. In fact, I think it would be rude to ask. Remember Terhorst’s book targeted the top 20% of earners of its time, people who were earning $100k+ a year back in the 80s.

The schooling being discussed is not public schools or colleges, but $10k per year boarding schools, $40k per year private colleges, and $80k per year prestigious universities (double those figures and then add some to get a handle on what that equates to in today’s currency). It is not as if the parents need to beg for help from the grandparents to provide the basics. Rather, they are begging so their kids can have the best, while they do the least.

In my definition of ‘financial independence’, relying on others to cover most or part of your spending might be considered a degree of financial independence, but it’s certainly a long way away from true financial freedom.

Terhorst’s other advice on schools seems pretty useful though – including how to select a school overseas, how to find out what the social climate of a school is like (and become involved), and how to discover how much specific knowledge children pick up.

If you are a parent interested in financial freedom, or even just securing the future of your kids through life’s ups and downs, I really recommend trying to find a secondhand copy of this book.

The main message of the chapter – and the takeaway message of today’s post – is that early retirement can be used to build quality family life.

A postscript

Anyone offering advice on raising children without first having kids of their own is likely to be told ‘You don’t know until you’ve have your own’. To a certain extent, this is true – as it is of anything in life. You don’t know what it is like to suffer from a severe illness or to lose a loved one or to have a high pressure career or to struggle financially or to be hungry or to fear for your life unless you have done so yourself. You might have empathy for anyone in these situations, but you’re still relying on your imagination. Even so, the vast majority of people who have not been in parliament have no issue with telling everyone how they think the country should be run!

I’m sure we can all agree a biological contribution or piece of paper does not a good parent make. While the majority of parents love their children, there are parents (biological and legal) who abuse their own children horribly. And conversely, while there is certainly wisdom that comes with experience, there are people who are not mothers or fathers but are more knowledgeable about children than most parents. This is especially the case when it comes to specialisations. I, for example, am only too happy to admit that I know relatively little about raising children in general. But it frustrates me when parents who know very little about language development try to lecture me on the topic.

That being said:

If you have children…

Let your children be your inspiration to achieve financial independence (whatever that means to you), not your excuse. Don’t look at others and say ‘It’s easier if you don’t have kids’. Instead, look for positive examples of both people with and without kids, and ask ‘How can I do this too?’

If you are thinking about children…

Think about what goals you want to achieve before you have kids – saving an emergency fund, or buying a house, for example (play around with some lending calculators – you will find that your borrowing capacity reduces substantially for every dependent you add and every income you subtract).

And if you don’t have children…

Ignore the cries of ‘It’s easier if you don’t have kids’. Be proud of your achievements. There are plenty of people who don’t have kids who still don’t achieve financial freedom. Enjoy what you have earned!

]]>https://www.enrichmentality.com/can-succeed-financially-kids/feed/0What money messages are books sending kids?https://www.enrichmentality.com/money-messages-books-sending-kids/
https://www.enrichmentality.com/money-messages-books-sending-kids/#commentsWed, 10 Jan 2018 06:28:07 +0000https://www.enrichmentality.com/?p=1893Cinderella. Jack and the Beanstalk. Aladdin. Even Harry Potter. So many of the books we read as children, or read to children, reflect particular money beliefs. Untold treasures in a secret cave, or at the end of a rainbow. The beliefs we have about money are often linked to childhood experiences and messages. We learn […]

Cinderella. Jack and the Beanstalk. Aladdin. Even Harry Potter. So many of the books we read as children, or read to children, reflect particular money beliefs. Untold treasures in a secret cave, or at the end of a rainbow.

Last year, I was privileged to meet Annabelle Mooney at the Money Talks conference, along with her co-contributors Tanweer Ali and Eva Lebdušková. And last month, I was very excited to receive a copy of the book The Language of Money and Debt edited by Mooney and Sifaki. This fantastic book has a whole section dedicated to money and childhood, the topic of my post today.

In The Language of Money and Debt, Astrid Van den Bossche highlights a lack of research on the financial worlds of children. Yet, as editors Annabelle Mooney and Evi Sifaki contend, ‘it seems reasonable to think that as children we acquire a kind of financial literacy in the way we acquire language: through repeated exposure to social practices.’

‘Just like language, the money system of an economic community only works because the members of the community have structure their social interactions around this money system’ (Bjerg, 2014).

The importance of stories

One of the ways in which children learn about this money system is via language itself. Through stories. As Hunt says, the central characters in children’s fiction like Cinderella or the Wizard of Oz, become part of our psyche, linking us not simply to childhood and story telling, but to basic myths and archetypes.

Tanweer Ali and Eva Lebdušková, whom I was privileged to meet at the conference, and again later in Prague, point out that ‘the written word engages children in a way that film does not. After all, a great deal is left to the reader’s imagination in the absence of visual representation, sound and voice.’

Chapter books often represent a wonderful opportunity for parents or teachers and children to actually engage. Especially when adults read books to younger children.

Ali and Lebdušková take the Harry Potter series as an example of how children are exposed to conceptualizations of money and wealth in books. They argue that although Rowling demonstrates sensitivity to inequalities and social justice, her books present a rather conservative worldview to her readers.

Poor people are good. Rich people are bad.

In Harry Potter, Ali and Lebdušková argue, it is better to be poor than rich, ‘and we are led to prefer the poor to the rich.’ At first blush, this might seem like a moral tale, and indeed, we are led to prefer the poor (e.g. Cinderella) to the rich in many stories. However, as the authors point out, making the rich into evildoers and the poor into heroes may be seen to subtly reinforce the status quo. The poor in Harry Potter are more appealing, warmer, and more pleasant to be with. Consider the contrast between Harry’s experiences with the Dursleys vs the Weasleys. There is very little incentive to ‘better’ oneself financially if wealth brings evil.

I remember reading one of my own childhood favourites, Charlie and the Chocolate Factory,to a class of children at a remote school in Fiji. At the time, I realised how differently I interpreted the opening chapter in that context, reading the book as an adult.

I believe Charlie is another book in which we are led to prefer to the poor to the rich. In Charlie and the Chocolate Factory, where Veruca Salt and Mike Teavee and the rest of the barrage of spoiled rich brats are presented as much less relatable and admirable than impoverished and sympathetic Charlie. And of course poor Cinderella is, in both morality and beauty, much better than her spoiled rich step-sisters.

Why is this so?

This poor=good and rich=bad trope in children’s stories which have a moral tale may be intended as a corrective to the seemingly common belief that the inverse is true. As the Money Advice Service reports, 16-21 year olds described ‘being good with money’ as showing restraint, organisation, and restriction. Qualities they defined as dull and unenticing.

Mooney and Sifaki explain that being wealthy is often associated with generosity, and generosity with goodness. Meanwhile, poverty is associated with meanness, and meanness with badness.

Sometimes, we take a shortcut, and assume that rich=good, even when generosity is not involved (or, likewise, that poor=bad). We see this, says Mooney and Sifaki, not just in the way we idolise the rich in the media, but in ‘the ongoing demonisation and indeed criminalisation of the poor’.

Or… are poor people bad and the rich good?

The poor=good and rich=bad trope is not universal, however. As Van den Bossche’s analysis of the popular childrens’ books Master Money, Dogger, and The Great Pet Sale demonstrates, other books – especially, perhaps, those which focus on money in a more educative sense – are clear expressions of middle class norms.

‘Master Money glorifies the morality of the bourgeoisie while suggesting the inevitability of moral corruption among the destitute. Though much more subtle, Dogger also is set within a respectable, clearly recognisable family; The Great Pet Sale assumes a protagonist with (limited, but effective) purchasing power.’

All three of these books are popular in schools, bookshops and libraries, and two of them The Great Pet Sale and Master Money the Millionaire) are actually recommended in the Money Counts guide to teaching money distributed to schools in England, Scotland and Wales.

Just as parents need to be mindful of the messages the games their children are playing, it is important to also consider both the moral and the economic messages of books and other media that children are exposed to. Books are a wonderful opportunity to start a conversation with your kids about money. And to examine some of these stereotypes.

Start the conversation

Asking questions before, during, and after reading is an excellent way to help guide your child’s reading. You can evaluate their comprehension, and encourage active engagement. Here’s a start: